Correlation Between Vanguard and Invesco EQQQ
Can any of the company-specific risk be diversified away by investing in both Vanguard and Invesco EQQQ at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Vanguard and Invesco EQQQ into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard SP 500 and Invesco EQQQ NASDAQ 100, you can compare the effects of market volatilities on Vanguard and Invesco EQQQ and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Vanguard with a short position of Invesco EQQQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard and Invesco EQQQ.
Diversification Opportunities for Vanguard and Invesco EQQQ
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Vanguard and Invesco is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard SP 500 and Invesco EQQQ NASDAQ 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco EQQQ NASDAQ and Vanguard is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Vanguard SP 500 are associated (or correlated) with Invesco EQQQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco EQQQ NASDAQ has no effect on the direction of Vanguard i.e., Vanguard and Invesco EQQQ go up and down completely randomly.
Pair Corralation between Vanguard and Invesco EQQQ
Assuming the 90 days trading horizon Vanguard is expected to generate 1.53 times less return on investment than Invesco EQQQ. But when comparing it to its historical volatility, Vanguard SP 500 is 1.25 times less risky than Invesco EQQQ. It trades about 0.1 of its potential returns per unit of risk. Invesco EQQQ NASDAQ 100 is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 19,070 in Invesco EQQQ NASDAQ 100 on August 31, 2024 and sell it today you would earn a total of 16,430 from holding Invesco EQQQ NASDAQ 100 or generate 86.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard SP 500 vs. Invesco EQQQ NASDAQ 100
Performance |
| Timeline |
| Vanguard SP 500 |
| Invesco EQQQ NASDAQ |
Vanguard and Invesco EQQQ Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard and Invesco EQQQ
The main advantage of trading using opposite Vanguard and Invesco EQQQ positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard position performs unexpectedly, Invesco EQQQ can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Invesco EQQQ will offset losses from the drop in Invesco EQQQ's long position.The idea behind Vanguard SP 500 and Invesco EQQQ NASDAQ 100 pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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